Solutions to improve credit risk management of vietnam bank for agriculture and rural development agribank

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS HOANG NGOC LINH SOLUTIONS TO IMPROVE CREDIT RISK MANAGEMENT OF VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (AGRIBANK) Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisor: Dr NGUYEN VIET DUNG Hanoi – 2010 TABLE OF CONTENTS ACKNOWLEDGEMENTS i ABSTRACT ii TÓM TẮT iv TABLE OF CONTENTS vi LIST OF ABBREVIATIONS xi LIST OF TABLE xii LIST OF FIGURES xiii INTRODUCTION 1 Thesis necessity Research Objectives Research Scope Data sources Research Methods Contributions of the research Limitation Structure of the thesis CHAPTER THEORETICAL FOUNDATION 1.1 Commercial banks 1.1.1 Main types of Risk in the bank operation 1.1.1.1 Liquidity risk 1.1.1.2 Credit risk 1.1.1.3 Interest rate risk 1.1.2 Other types of risk 1.2 Bank credit & Credit Risk 1.2.1 Bank credit 1.2.2 Classification of credits & credit risk 1.2.2.1 Classification of credits vi 1.2.2.2 Classification of credit risks 11 1.2.3 Root causes of credit risk 12 1.2.3.1 External reasons 12 1.2.3.2 Risks due to borrowers 14 1.2.3.3 Risks due to the bank internally 14 1.2.4 Damages caused by credit risks 15 1.2.4.1 To the bank 15 1.2.4.2 To economy and society 16 1.3 Credit risk management 16 1.3.1 Concept 16 1.3.2 Identification of credit risks 16 1.3.3 Preventive and corrective measures against groups of risk signs 18 1.3.3.1 Preventive measures: 18 1.3.3.2 Corrective actions: 19 1.3.3.3 Measures on debt recovery 20 1.3.3.4 Measures against bank officers and relevant bodies: 21 1.4 Risk management from the viewpoint of Basel Committee and criteria for development of a modern risk management model 21 1.4.1 Basel I Banking regulations 21 1.4.2 Methods of credit risk approach as per Basel II 23 1.4.3 Criteria for development of a modern risk management model as per Basel Committee 24 1.4.4 Vietnam’s existing regulations on debt classification, provisioning and use of provisions for settlement of credit risks 26 CHAPTER 28 ANALYSIS Of AGRIBANK’S CREDIT RISK MANAGEMENT 28 2.1 Overview on Agribank and its loan system 28 2.1.1 Milestones 28 2.1.2 Organization structure 30 vii 2.1.3 Operation networks 30 2.2 Overview of Agribank’s business performance in period of 2005 - 2009 and in first months of 2010 31 2.2.1 Business environment in period of 2005 - 2009 and in first months of 2010 31 2.2.2 Business performance during 2005 - 2009 34 2.2.2.1 Total Assets 34 2.2.2.2 Treasury 36 2.2.2.3 Some indicators to assess financial performance 40 2.2.2.4 Trends of capital adequacy of AGRIBANK 42 2.2.2.5 Business results of 2010’s first half 44 2.3 Loan structure and quality during 2005-2009 46 2.3.1 Loan structure: 46 2.3.1.1 Loan structure by economic regions 46 2.3.1.2 Structure of lending by economic sectors in the years 2005-2009 47 2.3.1.3 Loan structure by terms: 47 2.3.1.4 Loan structure by currencies: 48 2.3.1.5 Loan structure by economic industries: 48 2.3.2 Credit quality 49 2.3.2.1 Credit quality by terms 49 2.3.2.2 Credit quality by economic regions 49 2.3.2.3 Credit quality by enterprise types 49 2.3.2.4 Credit quality by branches 49 2.3.3 Assessment on provision for impairment loss and methods to deal with bad debts 52 2.3.3.1 Provision for impairment loss 52 2.3.3.2 Methods to deal with bad debts 53 2.4 Status quo of credit risk management in Agribank 54 viii 2.4.1 Credit organization structure and risk management: 54 2.4.2 Credit processes 56 2.4.3 Regulations on customer classification as currently applied 58 2.4.4 Some shortcomings in credit risk management 59 2.4.4.1 Shortcomings in provisioning and risk processing: 60 2.4.4.2 Shortcomings in credit policies, customer policies and customer classification 60 2.4.4.3 Shortcomings in credit procedures and credit risk management 61 2.4.4.4 Shortcomings from Staff’s qualification and career ethics 62 2.4.4.5 Shortcomings by insufficient information management system 63 2.4.5 Main reasons caused credit risk in Agribank 64 2.4.5.1 External reasons 64 2.4.5.2 Reasons caused by borrowers 65 2.4.5.3 Internal reasons 66 CHAPTER 69 SOLUTIONS AND RECOMMENDATIONS TO IMPROVE AGRIBANK’S 69 CREDIT RISK MANAGEMENT 69 3.1 Agribank’s development goals and orientation in terms of credit activities and credit risk management towards 2015 and 2020 69 3.2 Measures to improve the efficiency and effectiveness of credit risk management in Agribank 71 3.2.1 Strengthening financial conditions 71 3.2.2 Complete credit operation and risk management structure 72 3.2.3 Complete credit procedures 77 3.2.4 Improve the quality of human resources 79 3.2.5 Customer classification and assessment procedures 82 3.2.6 Develop customer policies in credit activities: 84 3.2.7 Credit policies 85 3.2.7.1 Set out prudential ratios in credit activities: 85 ix 3.2.7.2 Expand loans secured by collaterals 85 3.2.7.3 Disperse credit risks 87 3.2.8 Book provisions to offset risks: 89 3.2.9 Invest in modern information technology 89 3.3 Policy recommendations to improve commercial bank’s credit risk management 91 3.3.1 To the Government 91 3.3.2 To State Bank 92 CONCLUSION 94 x LIST OF ABBREVIATIONS ACB Asia Commercial Bank AGRIBANK Vietnam Bank for Agriculture and Rural Development ALCO Asset Liability Committee BIDV Bank for Investment and Development of Viet Nam CAR Capital Equity Ratio CBs Commercial Banks CEO Chief Executive Officer CIC Credit information center CIs Commercial Institutions DBS Development Bank of Singapore Limited GDP Gross Domestic Product IAS International Accounting Standards IRB Internal Ratings - Based Approach NPLs Non performing loans OCBC Oversea Chinese Banking Corporation LTD ROA Return on Assets ROE Return on Equity SA Standardized Approach SBV State Bank of Viet Nam UOB United Overseas Bank VAS Viet nam Accounting Standard VCB Bank for foreign trade of Vietnam xi LIST OF TABLE Table 2.1: CBs’ total assets from 2007 to 2009 35 Table 2.2: Treasury growth rates over the years 36 Table 2.3: Agribank's structure of deposits in the years 2005-2009 38 Table 2.4: ROA, ROE & some indicators of Agribank in the years 2007-2009 41 Table 2.5: ROA, ROE of CBs in 2009 42 Table 2.6: Agribank’s capital adequacy ratio (CAR) is as follows: 43 Table 2.7: Loan structure by economic industries: 48 Table 2.8: Agribank’s loan classification in the year 2006-2009 period 50 Table 2.9: Ratios of NPLs of CBs in 2009 51 Table 2.10: Agribank’s provision for impairment loss 52 Table 2.11: Agribank’s Risk handling in the year 2007-2009 period 53 Table 2.12: Agribank’s debt recovery in the year 2005-2009 period 53 Table 3.1: Structure of capital in the year 2006-2009 period 71 xii LIST OF FIGURE Figure 2.1 GDP Growth over the year 2005-2009 (%) 31 Figure 2.2 Agribank’s total assets from 2005 to 2009 35 Figure 2.3 Deposits of some big credit institutions (billion VND) 37 Figure 2.4 Agribank's break-down of deposits in the year 2009 by economic sectors 39 Figure 2.5 Agribank’s deposits in terms of currencies from 2005 to 2009 (billion VND) 40 Figure 2.6 Agribank’s owner equity from 2006 to 2009 41 Figure 2.7 Agribank’s profit before tax from 2006 to 2009 41 Figure 2.8 CAR of some commercial banks in Vietnam & in the region 44 Figure 2.9 Credit growth through years (2005 – 2009) (billion VND) 46 Figure 2.10 Agribank’s loan structure by economic regions in the year 2009 46 Figure 2.11 Structure of lending by economic sectors (billion VND) 47 Figure 2.12 Agribank’s loan structure by terms in the years 2005-2009 47 Figure 2.13 Agribank’s Outstanding by currencies from 2005 to 2009 48 xiii INTRODUCTION Thesis necessity 60-70% of commercial banks’ profit comes from credit operations, or even up to 90% elsewhere The credit monoculture is a vital issue in risk management of the banking industry Among existing risks, credit risk covers the biggest proportion in commercial banks, which account for up to 80% of fundamental risks and cause great impacts on banking operations Due to such impacts, risk management has become a focus and attracted special attention of the entire banking system In addition, credit operations are now among the most severe competition with foundation of joint stock commercial banks Commercial banks have taken advantage of their advantages to have brand names and hold big market shares in the local financial market Despite being established later, joint stock commercial banks have affirmed themselves with state-of-the-art technology, powerful human resources and marketing strategies, etc, step by step obtaining a firm position in the absolutely potential market of Vietnam It is not to mention foreign banks operating in Vietnam now Regardless of developed or developing banks, under completion procedures or scope expansion, risk management, especially credit risks, plays a significant role while profits from credit activities, in practice, account for a large portion of total revenues Therefore, good risk management secures banking operations and prevents potential risks in the future The financial environment is providing banks with a huge number of opportunities to enhance profits, as well as challenges of competition and risks Thus, risk management becomes one of the most efficient weapons of the industry The credit operations of Agribank over the last period also indicate that credit risk management of the whole system has not been controlled efficiently and risks are in a more and more increasing trend Consequently, it is now an urgent requirement that credit risks must be controlled and monitored methodologically and efficiently, ensuring credit activities to be under an acceptable risk scale, should establish relations with research centers and institutes, as well as training institutions in banking and risk management to approach the most updated knowledge to equip its staff For mitigation of credit risks, it is important to raise the responsibility of each staff, and attach credit officers’ and risk officers’ responsibilities with their benefits There should be clear rewards and punishments As credit officers often face risks, there should be a special compensation policy to encourage credit officers to avoid risks of career ethics Agribank should have timely treatment and reward policies to encourage staff to further develop their ability and sense of responsibility towards every penny of the bank’s capital For instance, export financing is now the type of credit with highest risk potential and the management and monitoring of this financing is a real difficulty in various aspects to officers, so there should be more reasonable compensation policy to staff involved in export financing Besides, there should be a detailed human resources planning so that training schedules may be efficiently prepared Key staff should be equipped with not only knowledge of risk management but also knowledge of business administration and human management, etc 3.2.5 Customer classification and assessment procedures So as to improve the efficiency of credit management and mitigate credit risks, the assessment and classification of customers is of great essence On the basis of customer assessment and classification, the bank may create specific credit policy applicable for each customer Because of the frequent movements of customers’ business activities, information collection and customer assessment must be conducted regularly for flexible policies appropriate to each specific period to avoid rigidity and subjectiveness As mentioned in Chapter 2, the classification of customers applied now in Agribank is still too simple, the application of internal rating system should be deployed promptly in the coming time to transparentize the credit quality to set out measures on bad debt recovery for the existing credit portfolio and assist the 82 accurate credit decision-making and efficient risk management of the new credit portfolio, playing decisive roles in gradually reducing backdated debts and monitoring new arising debts of AGRIBANK Another reason for urgent implementation of internal ratings is to initiatively integrate into the international economy, and to simultaneously comply with Decision No.493/2005/QD- NHNN dated April 22nd 2005  Customer classification The bank classifies customers by scoring financial and non-financial indicators so that it may have appropriate credit policies for each customer and group of customers  Debt classification: Debts are classified by quality and risk degree Debts of high qualities have low rate of risks and vice versa The bank classifies debts regularly to follow up, analyze and set out timely measures to deal with risks arising in each loan to ensure the capital security and profit achievement  Credit risk ratings in branches: Branches of the bank’s entire system must be allowed to classify risk degrees of credit operations so that directions and solvencies of shortcomings may be timely issued to cope with potential risks, mitigating risks and improving the efficiency and quality of credit activities  Develop tools and models to measure risks of credit activities The bank’s credit activities target to building a safe and efficient credit portfolio Loans should be reasonably distributed in sectors and industries as per prescribed limits to avoid excessive concentration on certain sectors, disperse risks for the best profitability and mitigate credit risks  Credit portfolio: Credit portfolio must be reviewed and there should be regular reports on risk trends, major risks, highly risky sectors of the portfolio and measures on risk mitigation 83 Basing on the review and analysis of risks affecting the income decline possibility and capital loss of the existing portfolio (due to changes of business environment, changes of the state policies, movements of enterprises themselves and reasons caused by the bank internally, etc.), the credit portfolio should be amended timely and reasonably to balance the portfolio of highly risky assets and low-weighted risk assets, which may accordingly create reasonable incomes and control risks 3.2.6 Develop customer policies in credit activities:  Customer polices of the bank are developed on basis of customer classification upon financial and non-financial indicators  Basing on results of customer classification, the bank applies specific policies to each customer and group of customers in the orientation of more priorities to highly ranked customers and vice versa: + Policies on loan interest rates and relevant fees + Loan conditions (collaterals, credit line, etc.) + Other support services thereof (export and import financing, support on foreign exchanges, etc.) Customer policies are strictly developed from the view point of deeper and wider cooperation with producers and traders on the basis of short-time and longterm economic benefits Criteria for customer classification should be established such as special customers, VIP customers, and prospective customers upon their relation history, influence level and services in use and to be used by customers Agribank should apply priority policies flexibly within the framework prescribed by the laws There should be priorities to increase deposit interest rates for enterprises with huge amounts, reduce fees of payment services and to decrease credit interest rates for enterprises with huge amounts of outstanding and reputation in repayment Procedures should be optimally simplified within possible conditions as long as credit efficiency and capital adequacy ratios are ensured 84 3.2.7 Credit policies There should be changes in credit policies of Agribank, as follows: 3.2.7.1 Set out prudential ratios in credit activities:  Credit limits for the bank’s entire system: Pursuant to regulations of the laws and orientations of the State Bank, depending on the bank’s business strategies, the bank considers and decides over necessary credit limits from time to time + Scope limits and credit growth rate + Outstanding limits over the total risk-weighted assets + Proportion of outstanding by time + Proportion of outstanding by economic sectors + Proportion of medium and long-term loans over total outstanding + Bad debt rate over total outstanding + List of sectors and fields restricted from credit granting, or granting with special conditions or prohibited from credit granting  Credit limits by sectors, products, and geographical regions: Upon analysis, reports should be made on development trends, capital demands, risk levels of industries, sectors and products in the market to mitigate risks due to credit concentration on some key aspects Depending on the bank’s financial capacity and capital demand satisfaction, the bank sets out appropriate credit limits to industries, products and geographical areas in each certain period of time: + Credit concentration limits by industries and products + Credit concentration limits by key economic regions  Credit limits by customers Based on regulations of the State Bank and practical operations and development strategy, the bank develops and complies with credit limits to a customer and a group of relevant customers 3.2.7.2 Expand loans secured by collaterals 85 Currently, the market and economy are experiencing a lot of complicated movements; credit activities contain a lot of highly potential risks One of the measures to ensure the security and reduce losses in case of risk occurrence is to foster loans secured by collaterals as they are secondary sources for debt recovery However, the evaluation of collaterals should be objective, transferable and fully comply with legal conditions Collaterals should be monitored frequently and collateral information should be fully grasped for re-evaluation in case of any huge turbulences Time for collateral re-evaluation should be ruled as follows: Re-assess guarantee assets Times - Real estate year/1 time - Personal Properties months/1 time - Stocks Weekly Regularly update information on collaterals of the same type via the market and auction centers for basis of evaluation Agribank orients to enhance loans secured by collaterals while customers’ assets especially state-owned ones’ are much lower than their outstanding with the bank Since July 1st 2010, the Law on State-owned Enterprises shall become invalid and all state enterprises are transferred to the new models of One-member State Limited Company or Joint Stock Company operating in compliance with the Law on Enterprises 2005 Thus, to increase collaterals, Agribank should have the following measures:  Require customers to supplement collaterals In addition to the enterprise’s assets, personal assets (Chairman of the Board of Directors’, Director’s, Chief Accountant’s, Member of the Board of Directors’, etc) can be used to secure loans with the bank Pledge of debt recovery rights, guarantees of the Corporation may also be used 86  Reduce outstanding steadily if customers fail to meet conditions of collaterals as per regulations of the bank 3.2.7.3 Disperse credit risks  Diversify customers: Expand loans to every economic sector, every segment of customers to avoid excessively centralized loans to one customer and mitigate risks in case of customers’ inability to repay Via risk analysis of Agribank, NPLs are mainly centralized in state enterprises Although Agribank has recently set out the orientation of customer strategies, there should be, from the viewpoint of the thesis’ writer, more appropriate measures to expend its lending to private sectors, small and mediumsized enterprises and households, etc and to be determined to restrain loans to inefficient state enterprises  Implement credit insurance: This is a measure to share credit risks indicated under modes of lending insurance, asset insurance, and borrowing insurance In Vietnam currently, only asset insurance is available To mitigate risks to collaterals, the bank requires borrowers to purchase insurance to secure the whole value of collaterals mortgaged with the bank and transfer the beneficiary rights to the bank Initially, Agribank should apply this on large customers such as hydropower plants and large-scaled projects  Diversify investment fields In order to diversify investment fields efficiently and safely, Agribank should establish a stable and long-term business strategy basing on the following issues: + Closely follow the credit orientation of the whole system in the coming time, and sectors of simulative investments of the State and the Government to develop plans and determine fields of investments + Base on the orientation of credit activities of Agribank in certain economic areas, the practical advantages and disadvantages of the areas to determine fields of 87 investment For regions with advantages in developing industries and small industries, there should be an orientation to develop investments in the trend of expanding loans to the processing industry, services of exporting cultural products like rubber, coffee, etc., export enterprises with stable markets, and enterprises of consumer goods with high competitiveness Lending by sectors should be stepping up to fields with higher profitability, and be restrained to risky fields like construction, and infrastructure In addition to diversifying products of services and deposits with particular characteristics of agriculture - farmers – rurality, the bank continues to expand agricultural loans for rural development, attempting to maintain and put the agriculture-farmer-rurality rate of 70%/total outstanding The agriculture-farmer-rurality policy is considered the main force coverage of Agribank There should be restructuring of investment in each member unit Capital should be balanced to finance agriculture, exports of foods, catfish, basafish, coffee in line with expansion to potential industries like: banking-finance-insurance, chemicals, post-telecommunication-airline, energy, mineral resources Concentration on some major business sectors such as real estate, securities, etc should be avoided; consumer loans must be strictly monitored; outstanding in the large areas called HN and HCM City, and big provinces and cities Also, medium and long-term loans and big project financing should be decreased Priorities of capital should be given to businesses involved in exports and consumer goods Enclosed lending from production to consumption and export should be more and more implemented In parallel with the positive restructuring of proportions in the credit structure, AGRIBANK also focuses on building and developing a sustainable customer base, including economic groups, big corporations of the country, who are investing in key industries and fields which play significant roles in economic development such as electricity, cement, energy, etc 88 3.2.8 Book provisions to offset risks: The bank must classify assets frequently; book and use provisions to handle risks in operations, including credit activities in order to initiatively process risks arisen and make the bank’s finance healthy The classification of assets, booking and use of provisions in banking operations shall comply with regulations of the State Bank from time to time Currently, the bank is implementing the classification of debts, booking and use of provisions to handle credit risks as per Decision No 493/2005/QĐ-NHNN dated April 22nd 2005 issued by the Governor of the State Bank When the bank has sufficient financial capability and fully meets conditions of Decision No 493/2005/QD-NHNN, in order to gradually approach the international practices and fit with regulations of Basel Committee, the classification of assets and provisioning shall be conducted by the qualitative method Accordingly, provisioning policies and internal rating system should be developed and approved by the State Bank upon the basis of assessments on customers’ economic situations and repayment capability as well as financial capability of credit institutions themselves Regulations on classification and provisioning by this method reflect the real nature of reserves for any deficits or risks of the bank Assets are provisioned as per their real quality and loss possibility, enabling the bank to timely cope with highly risky assets 3.2.9 Invest in modern information technology Agribank is now under the process of fast integration into the international and regional communities In order to adapt to integration requirements and help the management with better asset management, system security, especially credit risk management, Agribank is now implementing the modernization system namely IPcas Phase I which has operated well and Phase II which is now under implementation However, there are still some shortcomings such as: the system is unable to give warnings when a bank in or out of the system grants a loan which turns out to 89 have risks of repayment, is unable to give warnings when the customer uses collateral to mortgage with a number of banks, etc Thus, it is crucial to better complete the information technology system  Establish and apply automatic software programs to classify customers, credit risk rating for customers who are economic organizations and score card for individual customers to lay the foundation for making-loan decision  Apply software technology to assess whether medium and long-term projects are efficient or not On such basis, fast and accurate results are given for credit officers to make loan decisions  Continue to improve and enhance the role of network and system administration as when information technology becomes more developed, high-tech products such as home - banking, internet banking, international card, cash withdrawal card, etc can be easily hacked, thus harming customers’ trust in Agribank  Built Early Warning System: Example common risk signals in Static Early Warning Systems as bellowed, These systems are characterized by the definition of individual risk signals that are checked at regular intervals and usually in an automated manner They are used both in the retail and the corporate customer segment Typically, the risk 90 signals used are assigned points to weight their significance Highly developed models of this kind adapt the action derived from the early warning system with the total number of points as well as with the distribution pattern In addition, such systems are linked to a customer contact database which contains information about contacts with the customer in the course of the business relationship and about the customer s reactions in each case (Source: Joetta Colquitt (2007), “Credit Risk Management – How to avoid lending disasters and maximize earnings” McGraw Hill, pp 150-152) 3.3 Policy recommendations to improve commercial bank’s credit risk management 3.3.1 To the Government Support from the Government, and relevant levels and industries is of great importance The Government should have strong supporting measures on legal regulations so that commercial banks in general including Agribank expand their business activities, mitigate risks, purify the financial and monetary market, ensure the sustainable development of the economy to integrate into the world economy The thesis proposes the following recommendations: Firstly, the Government should improve the legal system and law enforcement agencies should be more aware of their responsibilities for enterprise management, business management, cooperate with banks in prevention of defrauds and intentionally using borrowings with wrong purposes, share with banks the risks that are pushed into banks by the economy Secondly, the Government should issue regulations on cooperation among tax agencies, audit offices, consultancy companies and banks in clarifying and transparenting customers’ financial statements to avoid the situation that an enterprise creates a number of statements to apply for bank loans Thirdly, the Government, the State Bank, relevant ministries and authorities should have more definite and determined directions to help commercial banks including Agribank to quickly recover hundreds of billion of bad debts Up to now, 91 a great number of assets being real estates related to legal cases have been declared by courts to be transferred to Agribank for debt recovery, but in fact, execution has not fully performed due to procedural obstacles The Government and relevant ministries and agencies are kindly requested to enable commercial banks and enterprises to perform loan security obligations, process collaterals for debt recovery, especially assets owned by state enterprises Finally, the debt trading market in Vietnam has not much developed, which results in the uncompetitive prices and limited number of transactions Legal documents should be improved so that debt trading companies are put into operations and relieve the accumulatively blocked funds over the years and assets mortgaged or pledged with the bank Financial organizations transfer the assets to such companies under the commission form on the basis of transfer contract as agreed by parties to help commercial banks including Agribank to recover the debts and exploit such blocked funds effectively Foundation of debt trading companies is of great necessity to cope with blocked funds for commercial banks, Agribank, which accordingly may diversify credit contracts 3.3.2 To State Bank The State Bank plays a huge role in introducing the general strategy to commercial banks The thesis proposes some recommendations to the State Bank as follows: Firstly, the State Bank should build up and improve strategies of risk management policies properly A comprehensive reform of factors affecting the risk management capacity, including planning and developing risk management strategies and policies should be performed There should be directions and guidance to credit institutions to systematically develop indicators and forewarned limits of potential risks in credit activities to restrain or prohibit lending because the risk is too high or at the cut-off point (i.e reaching the maximum limit for each specific sector or enterprise) 92 Secondly, the State Bank should coordinate with other ministries and agencies to complete the system of international accounting standards (IAS) Measures on improving internal inspection and audit methods among commercial banks should be developed and proceed to the international practices Because the accounting system applicable to Vietnam’s credit institutions only complies with about 50% of international accounting standards, there are differences in indicators of provisions to be booked in the context of supervision as per Vietnam accounting standards (VAS) and IAS Therefore, to prevent commercial banks from conducting the audit in both VAS and IAS, the State Bank should propose the Finance Ministry to urgently promulgate Vietnam accounting standards with presentation, recognition and measurement of financial instruments in compliance with IAS Thirdly, the State Bank should issue regulations on management of lending to the same customer by commercial banks to support and cope with issues that regulations on syndicated lending have not covered Finally, the State Bank should clearly and strictly force credit institutions to provide information such as outstanding status, repayment capability, bad debts, collaterals of customers including organizations and individuals to CIC CIC should be required to exploit various sources of information about enterprises and frequently give warnings bout problematic customers for recognition and prevention of commercial banks 93 CONCLUSION Credit risks are complicated and diversified, consisting of both controllable and uncontrollable ones Credit risks may originate from subjective and/or objective reasons Consequences of credit risks are often severe So the seeking and applying appropriate preventive measures to mitigate risks and minimize damages are of great importance In its credit activities Agribank has been applying a number of active measures on prevention and management of risks to minimize any damages caused by credit risks and increase profitability However, Agribank’s bad debt is increasing, the credit risk management shows some shortcomings The question of how to handle NPLs and create a strongly healthy credit environment in Agribank is a big question that needs time to answer All the analyzed findings about the current situation in credit risk management practices in Agribank , together with knowledge I grasp during my study and research as well as experience as a credit officer over the last years, I would like to recommend some measures to improve the efficiency of credit risk management in Agribank for sustaining its viability and competitive advantages in the banking market as well as in the country’s international integration process Research’s shortcomings are unavoidable It would be my honor to receive any of your contribution and comments Thank you very much! 94 REFERENCE Dr: Ir.Tony Van Gestel and Prof Dr Bart Baesens (2008), “Risk Credit Management” Oxford University Press Didier Cossin and Hugues Pirotte (2001),“ Advanced credit risk analysis Financial Approaches and Mathematical models to assess, Price and Management credit risk” , John Wiley and sons, LTD Andrew Fight (2004), “Credit risk management”, Elsevier Butterworth – Heinemann publisher Joetta Colquitt (2007), “Credit Risk Management – How to avoid lending disasters and maximize earnings” McGraw Hill, pp 150-152 Univ.Doz.Mag.Dr Josef Christl and Dr Kurt Pribil (2004), “Credit Approval Process and Credit risk Management, guidelines on credit risk management, Oesterreichische National Bank (OeNB) in co-operation with the Financial Market Authority (FMA) Tran Dinh Dinh (2008), Credit risk management in banking according to standard, international rules and Vietnam regulations, judiciary publisher Dr Nguyen Huu Thuy, “Some measures to improve the control of creit activities in commercial banks”, PhD Thesis, 2007 Vietnam Bank for Agriculture and Rural Development, “Credit handbook”, 2004’ Vietnam Bank for Agriculture and Rural Development, “Annual report”, 2005, 2006, 2007, 2008, 2009 10 The State Bank, “Reports on Deposits”, 2009 11 Agribank’s Income Statements for 2007 – 2009 12 Commercial banks’ annual reports for 2009 13 State Bank of Viet nam, “Decision No 493/2005/QD-NHNN on issuing regulations on making loan classification, making impairment loss and using provision to handle credit risk in banking operation”, 22/4/2005 14 Websites of Commercial Banks, including: 95 http://www.acb.com.vn; http://www.techcombank.com.vn; http://www.sacombank.com.vn; http://www.eximbank.com.vn; http://www.bidv.com,vn; http://www.vcb.com.vn; http://www.agribank.com.vn; http://www.vietinbank.vn; http://www.ocbc.com, http://www.uob.com.sg, www.dbs.com/sg, www.mayabanks.com, www.boc.cn 15 General Department of Statistics (2005, 2006, 2007, 2008 and 2009), http://www.gso.gov.vn 16 http://www.creditinfo.org.vn 96 ... RECOMMENDATIONS TO IMPROVE AGRIBANK? ??S 69 CREDIT RISK MANAGEMENT 69 3.1 Agribank? ??s development goals and orientation in terms of credit activities and credit risk management towards 2015 and 2020... clarification of credit risks and credit risk management in Agribank and identification of key reasons for credit risks and corrective actions However, due to the limited time and capability,... 2010 of Vietnam Bank for Agriculture and Rural Development) 1.2.2.2 Classification of credit risks Upon root causes of risks, credit risks may be divided into the following types:  Transaction risk: